Your Thoughts Matter

Offshore bank accounts, tax havens: Research roundup

(Pixabay)

The April 2016 release of a vast trove of files on the offshore financial dealings of politicians, businesses and public figures has raised questions over the widespread use of offshore banking to avoid taxes and evade financial oversight. The cache of 11.5 million records known as “The Panama Papers”—which the Guardian has called “the biggest data leak in history”—was provided by an anonymous source to the German newspaper Süddeutsche Zeitung, which shared them with the International Consortium of Investigative Journalists. The journalist consortium then shared them with a large network of international news outlets. The data was taken from the database of the world’s largest offshore law firm, Mossack Fonseca. Among the countries with figures named in the reports are Iceland, Ukraine, Pakistan, Saudi Arabia, Russia and Argentina.

Tax havens, also known as “offshore financial centers,” are countries and territories that offer low tax rates and less stringent regulatory policies to foreign investors, according to the Organization for Economic Cooperation and Development (OECD). Though legal, the United States and other higher-tax countries have expressed concern that tax havens may affect their economies–eroding domestic tax collections, steering economic activity away from higher-tax countries, facilitating criminal activity and impeding the regulation of legal and financial systems around the world. Some economists have argued that tax havens facilitate tax evasion and are thus a major driver of wealth inequality. In 1998, the OECD issued a report calling for global tax policy reform and arguing that, “governments cannot stand back while their tax bases are eroded through the actions of countries which offer taxpayers ways to exploit tax havens.”

Below is a series of studies on offshore tax havens:

 

“Treasure Islands”

Hines Jr., James R. The Journal of Economic Perspectives, 2010, Vol. 24, Issue 4. doi: 10.1257/jep.24.4.103.

Summary: The paper examines the economic effects of tax havens. According to the study, “tax havens are small; most are islands; all but a few have populations below one million; and they have above-average incomes.” The study contends that while concerns about how tax havens disrupt world economies are legitimate in principal, “they are often founded on anecdotal rather than systematic evidence. Yet tax haven policies may also benefit other economies and even facilitate the effective operation of the tax systems of other countries.”

 

“Taxing across Borders: Tracking Personal Wealth and Corporate Profits”

Zucman, Gabriel. Journal of Economic Perspectives, 2014, Vol. 28, No. 4. doi: 10.1257/jep.28.4.121.

Summary: This study attempts to estimate the magnitude of corporate tax avoidance and personal tax evasion through offshore tax havens. It found U.S. corporations hold 20 percent of profits in tax havens, a tenfold increase since 1980. The effective tax rate for U.S. corporations has declined from 30 to 20 percent over the last 15 years, and about two-thirds of this decline can be attributed to increased international tax avoidance. Globally, 8 percent of the world’s personal financial wealth is held offshore, costing more than $200 billion to governments every year. According to the study, “despite ambitious policy initiatives, profit shifting to tax havens and offshore wealth are rising.” Zucman argues for global tax policy reform, specifically creating a world financial registry, which would make it impossible for multinational corporations to falsely attribute profits to tax havens instead of the countries where the profits should be taxed.

 

“Tax Competition with Parasitic Tax Havens”

Slemrod, Joel; Wilson, John D. Journal of Public Economics, 2009, Vol. 93. doi: 10.3386/w12225.

Summary: This study attempts to show how some tax haven countries are “parasitic” on the tax revenues of other countries by developing a theory of tax havens and tax competition. Regarding corporations, the havens use real resources to help companies camouflage their home-country tax avoidance, and countries use resources in an attempt to limit the transfer of tax revenues to the havens. The study also discusses how havens are used by individuals to avoid taxes, and comes up with a theory of the equilibrium tax rates on “mobile capital” and “immobile labor.” It concludes that the elimination of tax havens would improve welfare in non-haven countries, in part because countries would be induced to increase their tax rates, which they have set at inefficiently low levels in an attempt to attract mobile capital.

 

Keywords: research roundup, offshore accounts, Panama Papers, tax havens

https://journalistsresource.org/wp-content/uploads/2016/04/Safe-deposit-box.jpg